Move to cut overseas GST threshold

The $1000 threshold on overseas online purchases may be reduced. Photo: Louie Douvis

THE federal government is laying the groundwork for a future cut in the $1000 GST-free threshold for goods bought from overseas online stores.

On Monday, the assistant Treasurer, David Bradbury, said the $1000 threshold was ''very high'' compared with overseas, and the government would start preparing ''business cases'' for changing the tax rules governing low-value goods purchased from overseas.

Although it has ruled out cutting the threshold immediately and no final decision has been made, the government will start processes that would allow it to change the threshold.

For instance, it will consider legal changes to encourage foreign firms to collect GST from Australians, and will kick off negotiations with the states on the contentious issue.

It expects more detailed information late next year, which would inform its final decision.

Mr Bradbury said domestic retailers should not be unfairly disadvantaged by the $1000 threshold, even if it was not the main reason many shopped at overseas online stores.

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''We are rejecting calls for an immediate reduction in the threshold but we do accept that there is a strong case in the interests of fairness and competitive tax neutrality that this issue be dealt with,'' he said.

In hindsight, Mr Bradbury said the Howard government's decision to set the threshold at $1000 in 2005 was the ''wrong call,'' and had left Australia with one of the highest thresholds in the world.

Although domestic firms are disadvantaged by the rule, Australia Post and Customs lack the capacity to lower the threshold immediately without causing delivery headaches.

Mr Bradbury made the comments as he unveiled the government's interim response to a Treasury taskforce that has examined the long-held gripe of retailers.

A landmark review by the Productivity Commission last year gave ''in-principle'' support for cutting the threshold but found doing so would cost more to administer than it would raise in revenue.

Treasury has since taken a closer look at cutting the cost of processing millions of parcels, and recommended several changes that could allow the government to lower the threshold.

In its interim response, the government accepted most recommendations and outlined various steps it would take before providing a final response next year.

It will start talks with the states about putting in extra funding for the cost of processing incoming parcels, and will consider calls that it change the laws to enable overseas firms to the collect the GST.

The government will also separate the threshold for customs duty from the threshold for GST, which would allow the threshold for GST to be lowered in the future if needed.

States receive all of the $50 billion a year raised by the GST - but growth in tax collections has stalled in recent years, prompting state premiers to demand the threshold be lowered.

The NSW Treasurer, Mike Baird, who wants it cut to $30, said he would continue to push the issue aggressively at meetings with the federal government later this month.

''Not only does the current threshold mean that states forgo over $600 million of GST revenue per year on transactions in goods and over $1 billion per year on transactions in services but it also provides a tax advantage for foreign retailers,'' Mr Baird said.